Ninth Circuit Finds Medi-Cal Rate Cut Capricious

PASADENA, Calif. (CN) — In a victory for dozens of hospitals, the Ninth Circuit on Monday reversed and remanded the Department of Health and Human Services’ 10 percent rate cut for Medicaid beneficiaries who receive outpatient services in California.

More than 50 hospitals that provide outpatient services to Medicaid beneficiaries in California sued HHS in 2011, challenging a retroactive rate reduction.

The dispute involves California’s temporary rate reductions from 2008 and 2009, when the state cut payments to Medicaid providers for outpatient services.

California set the reduction at 10 percent in February 2008, then replaced that figure with a more modest set of cuts seven months later.

In 2009 it capped contributions the state can make to county-paid wages and benefits for providers of in-home care. This led to a number of lawsuits.

To receive federal Medicaid benefits, California must submit a state plan to the HHS secretary for approval. When HHS declined to approve the reductions, California asked it to reconsider, and submitted new data on Medi-Cal beneficiaries’ use of outpatient services.

The federal HHS then approved the resubmitted state plan amendment, and 57 hospitals sued, saying there was insufficient evidence comparing Medi-Cal beneficiaries with the general public.

U.S. District Judge Stephen Wilson ruled for HHS in 2015, concluding that the approval of California’s plan was not arbitrary or capricious. The hospitals appealed.

On Monday, the Ninth Circuit panel concluded that HHS had approved the plan improperly.

“Without evidence reflecting the general population’s level of access, the Secretary cannot fulfill his duty to ‘make a determination as to whether [the plan] conforms to the requirements for approval,’” Ninth Circuit Judge Milan Smith wrote for the panel. He found the federal approval arbitrary and capricious.

“As a strictly logical matter, the Secretary could not have considered § 30(A)’s expressly mandated result of equal access absent some form of comparative-access data.” The panel reversed and remanded, with instructions.

Smith was joined by Ninth Circuit Judge N. Randy Smith and U.S. District Judge Gary Feinerman, from California’s Central District, sitting by designation.